Paying Off Your Debts: The Best Way To Start Saving Money?

The vast majority of people reading this post are likely to be in debt right now – it’s the way the country’s finances work in modern times. However, there’s a difference between good debts – such as a home loan or credit card that you pay off in full every month – and bad debts. And once you start entering the realms of the latter, only one thing is guaranteed: it’s going to cost you a lot of money to pay back.

So, while it’s always important to start putting money aside in a savings account and cut your spending, sometimes repaying what you should be a priority. Ultimately, attacking your debts first will free up more of your income, and help you avoid overpaying in a variety of different ways. In today’s guide, we’re going to explore some of these ways that paying back debts is the best way of saving cash.

Let’s say you are 21-years old and max out a $3,000 credit card. If you only pay back the minimum payments each month, you won’t even pay off the interest charges – and guess how old you will be when you finally clear the card? Incredibly, you will be almost 50 at the current rates, and will likely have paid $4,000 in interest charges alone. It’s an astonishing amount of wasted money, so if you have a credit card make sure you are paying more than the minimum amount – preferably paying it off in full each week.

Borrowing vs saving

Another thing to consider is the interest rates usually charged or offered by banks. Take a look at your credit card’s interest rates with your current lender – something like 16-17 percent is pretty standard right now, according to Bankrate.com. Now, search through their very best savings accounts that they offer their very best customers. It’s unlikely you will find anything more than 5-6 percent. It’s a big difference, right? So putting money into a savings account is going to earn you a lot less than you will save by putting it towards your debt.

Once you default on your debt, you will find it prohibitively expensive to borrow any money, if you can at all. The consequences can be long-lasting and far-reaching on your finances. A new mortgage will cost you far more than it would someone with an excellent credit score. As debtsettlement.co point out, you might be better off coming to an agreement with your lender or debt collector, as at least it will show you have made an effort.

Switching

Now, let’s say you are paying the same 16-17 percent interest we discussed above on your current credit card. If you check a credit card comparison tool online, you’ll find that there are many cards out there that offer balance transfers and zero percent on spending. If you can grab one of these deals for 18-24 months, it means you will be able to pay more of your debts off with the same amount of monthly payments.

If you are in debt, it’s often going to cost you less money to pay off than it will earn you in a savings account. Feel free to leave your thoughts in the comments section below!